1) The preferred stock of Gator Industries sells for $35 and pays $2.75% per year in dividends. What is the cost of preferred stock financing? If Gator were to issue 500,000 more preferred shares just like the one it currently has outstanding, it could sell them for $35 a share but would incur flotation costs of $3 per share. What are the flotation costs for issuing the preferred shares, and how should these costs be incorporated into the NPV of the project being financed?

1) The preferred stock of Gator Industries sells for $35 and pays $2.75% per year in dividends. What is the cost of preferred stock financing? If Gator were to issue 500,000 more preferred shares just like the one it currently has outstanding, it could sell them for $35 a share but would incur flotation costs of $3 per share. What are the flotation costs for issuing the preferred shares, and how should these costs be incorporated into the NPV of the project being financed?

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter18: Initial Public Offerings, Investment Banking, And Capital Formation

Section: Chapter Questions

Problem 9MC

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